Apple has a tall order ahead of it if the company ever plans to challenge some of its larger rivals in personal computer market in terms of volume shipments, but the profit the Mac maker currently takes home from the sale of each system may already be enough to spook its competition.

In a blog post titled "A Consequence of Losing the PC Wars," high school student and amateur tech journalist Matt Richman performed basic number crunching in comparing Apple's profit margin from the sale of Macs to that of Hewlett-Packard PCs.

The results are striking.

Richman recalled that Apple amassed $4.976 billion in revenue from the sale of 3.76 million Macs during its previous quarter, yielding an average selling price of $1,323.40 per Mac. He then multiplied that figure by a 28% gross margin estimate for Mac sales from Jefferies & Co. -- which is still several hundred basis points below the company's reported average -- to arrive at a profit of $370.55 per Mac sold.

By comparison, HPs Personal Systems Group brought in $9.415 billion in revenue and turned a profit of $533 million last quarter. The PC maker's operating margin, which doesnt factor in overhead costs, came in at 5.66%.

"If we assume they spent 1% of their $9.415 billion in revenue $94.15 million on operations, then their profit margin was 6.66%," Richman wrote. "But lets give them the benefit of the doubt and make it 8%."

Given that the average selling price of Macs increase 5.71% over the previous two quarters, he applied growth rate to data published by market research firm NPD, which identified the average selling price of PCs in November as $615, to reach a current average selling price of $650.12.

With an average selling price of $650 and a generously-calculated profit margin of 8 percent, HP would be making approximately $52 on the sale of each PC, meaning "Apple makes more money from the sale of one Mac than HP does from selling seven PCs."

"Numbers like these have to scare the hell out of Apples competition," wrote the Loop's Jim Dalrymple, who was first to draw attention to Richman's revelation.

Since HP sells a lot more computers, this isn't really a fair comparison. The question we can't answer from the public data is if you take the most profitable N computers HP sold, where N is the number of computer Apple sold, how does the profitability compare? Apple can't scale well because they put so much effort into their unibody aluminum case construction, etc., while HP can shovel thousands of plastic hunks to businesses.

And although I have zero inside information, I'm pretty sure everybody at Apple is tickled pink by the fact that Mac sales have increased much faster than the personal computer market overall. Despite the global recession.

all you goshites who complain about the price, please go over to the BMW and Ferrari forums and complain bitterly that you cant afford their products either. Like, why dont ferrari sell their cars for £40,000, because I want one?

Yes. Apple sells more and more of them EVERY. FREAKING. QUARTER., so they're OBVIOUSLY too expensive.

It couldn't possibly be because of their higher quality, better software, and ease of use. No, they sell a lot of them (and they sell MORE lots-of-them every year) because they're "too expensive".

Please don't try to reason with these people. They have absolutely no concept of supply and demand. They will never understand the math that says that Apple has doubled its market share over the last 10 years and continues to sell more computers on a percentage basis than a) the industry average and b) any other computer manufacturer.

The people you are arguing with have no concept of running a business. They prove over and over again that they would rather work twice as many hours for the same amount of money as what another person receives for offering a superior service.

Just because they sell these things (with like a 9% market share) does not mean they are fairly priced. They are expensive, and that is reflected in the market share.

Actually it means exactly that. The only judgement of whether something is priced fairly is whether a buyer and a seller agree on the transaction. Macs are too expensive for much of the market, but fairly priced for another part of the market.

BMWs are fairly priced, Hondas are fairly priced, scooters are fairly priced. They are all means of conveyance, priced very differently, but all fair.

Not sure what to make of this observation.
Porsche makes more profit from the sale of each vehicle than Ford makes from the sale of each one of theirs, and? The respective companies, computer and automotive, occupy different market niches.

Just because they sell these things (with like a 9% market share) does not mean they are fairly priced. They are expensive, and that is reflected in the market share.

So the only way to fairly price a product is so you are selling it at margins where the company is better off simply selling the division away? (IBM, and their Thinkpads).

This analysis is incomplete. The reason HP has such lower margins are the following:

1) No differentiation. Dell, and a range of cheap Chinese manufacturers sell the exact same product HP does. HP can ONLY compete on price, leading to a race to the bottom. A consequence is 0 to no ability to innovate, or invest in R&D.
2) Apple does NOT sell low priced computers. If you only compare margins of HPs $1000+ laptops/desktops vs margins of Apple's computers, they will be similar. HP's margins are dragged down because the majority of computers they sell are the cheap <$500 ones, which literally have no margins. A market in which Apple does not compete.

The obvious rejoinder is the Mac Mini, but I will agree that the Mini is overpriced. The Mini is essentially Apple's way of offering Mac OS X at a cheap price point (intended largely for enthusiasts, small scale servers, and developers). IOW, the Mini is intended to be a niche device, and niche devices almost always more expensive than mass consumption devices.

Just because they sell these things (with like a 9% market share) does not mean they are fairly priced. They are expensive, and that is reflected in the market share.

It's very simple: Apple sells Macs at the "price the market will bear". They're not too expensive for me so I buy them and I don't bitch about how I consider HP's products to be shoddy. If Macs are too expensive for you, buy something else and be happy about it! There's nobody forcing you to spend your hard-earned money on Macs, right?

macs may be expensive, but they are not overpriced. apple is only in the business of making premium computers so you cannot compare a mac to an entry level hp, or dell, or any other oem. if you compare a mac to another premium computer you will find that they are fairly priced. anyhow i would rather pay a little extra for a mac knowing the profit apple makes off me will go to research in innovation and new products whereas hp will just pocket your money and continue to put out crap

... and you have to pay a big stinking fee to Microsoft every time you need to upgrade Windows. Not nearly so expensive with MacOSX. Not to mention the outrageous costs for upgrading mainline programs such as Office on Windows.

To me, I will gladly plunk down some extra money --it's not that much when you look at the overall costs. In fact to me it is a much better bargain, not to mention a much more friendly and intuitive environment. Plus I know I am fueling Apple's R&D for more and better stuff all the time.

Which is why some people don't buy. It's also why Apple's doing so well as a profitable business. Every product is 'too expensive' for some, and 'just right' for others. It's a pretty basic business decision of optimizing the price point to maximize profits between the 'too expensives' and the 'just rights'. Doing otherwise would make little business sense.

It helps to imagine what you would do if you were the owner of a business and wanted to be financially successful. Once the optimal price point is found, the business' job is then to find ways to do things like cut costs, make new or better products (innovate), etc.

/economics101

You did not come into the world to fail. You came into the world to succeed.

It's very simple: Apple sells Macs at the "price the market will bear". They're not too expensive for me so I buy them and I don't bitch about how I consider HP's products to be shoddy. If Macs are too expensive for you, buy something else and be happy about it! There's nobody forcing you to spend your hard-earned money on Macs, right?

ah - beat me to it!

You did not come into the world to fail. You came into the world to succeed.

HP is giving away computers so it can get its profit from selling services, accessories, software, and inks and toners.

If that's HP's brilliant "strategy" in the PC market, they'd better hope Apple doesn't get into the "accessories, software, inks and toners" business. Because if they do, HP is pretty much toast outside of the corporate infrastructure sector, where they face heavy competition from IBM and Oracle.

Fair is what the market will support. I have Macs that are 10yrs old and still running without an issue. I have sold Macs that are 10yrs old and they have no issues. The only reason I updated to intel was due to my business, and most of the apps I use will now run only on Intel. As long as I continue to receive this type of performance from Mac, I will continue to purchase.

In real dollars for me, Macs have gotten cheaper. I used to have run a Dual G5 for my business, now, because of the new iMacs, are all I need. This has easily saved me 1k on just one computer. The G5 at this time is functioning as a media server, but can handle so much more.

It is my experience that pound for pound, dollar for dollar, Macs are more than fair value.

Please don't try to reason with these people. They have absolutely no concept of supply and demand. They will never understand the math that says that Apple has doubled its market share over the last 10 years and continues to sell more computers on a percentage basis than a) the industry average and b) any other computer manufacturer.

The people you are arguing with have no concept of running a business. They prove over and over again that they would rather work twice as many hours for the same amount of money as what another person receives for offering a superior service.

How can you ever hope to get through to them.

Correct.

A certain percentage of readers here have zero understanding of the fundamentals of running a business, and will conveniently suspend the laws of physics in order to promote something they wish.

They don't understand that it's the overall marketplace that Apple looks at and how to address it, not just their individual usage case which is statistically irrelevant.

There is an obvious solution to HP's problem. All they have to do is raise their prices. Certainly, all of their loyal customers, (clients) will be happy to pay Apple prices for those fine HP products.

Apple has no competition. Every commercial product which competes directly with an Apple product gives the distinct impression that, Where it is original, it is not good, and where it is good, it...